Exam 5 March Summer 2020, questions PDF

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Auditing Problems Activity1. The accounting standards used in the Philippines are adapted from the standards issued by the a. Federal Accounting Standards Board (FASB). b. International Accounting Standards Board (IASB). c. Philippine Institute of Certiied Public Accountants (PICPA). d. Democratic P...

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Audi t i ngPr obl emsAct i vi t y 1. Thea c c ount i ngs t a nda r dsus e di nt hePhi l i ppi ne sa r ea da pt e df r om t hes t anda r dsi s s ue db yt he a . Fe de r a lAc c ount i ngSt a ndar dsBoa r d( F ASB) . b .I nt e r na t i ona lAc c ount i ngS t anda r dsBoa r d( I ASB) . c . Phi l i ppi neI ns t i t ut eofCe r t i fie dPubl i cAc c ount a nt s( PI CP A) . d. De moc r a t i cPe opl e ' sRe publ i cofKor e aAc c ount i ngSt a ndar dsCommi t t e e( DPKRASC) . 2 . ThePFRSsc ons i s tofa l loft hef ol l o wi nge x c e pt a . PFRSs . b .P ASs . c .I nt e r pr e t a t i ons . d. Conc e pt ua lFr a me wor k. 3 . Thei s s ua nc eoffina nc i a lr e por t i ngs t anda r dsi nt hePhi l i ppi ne si st her e s pons i bi l i t yoft he a . PI CP A b . FRSC c . AASC d. CPECounc i l 4 . OnNove mbe r1 , 2 0 x1 ,ac ompanypur c ha s e dane w ma c hi net ha ti tdoe sno tha v et opa yf orunt i l Nove mbe r1 ,2 0 x3.Thet ot a lpa yme ntonNo ve mbe r1 ,2 0x 3 ,wi l li nc l udebot hpr i nc i pa la nd i nt e r e s t .As s umi ngi nt e r e s ta ta1 0 %r a t e ,t hec os toft hema c hi newoul dbet het ot a lpa yme nt mul t i pl i e dbywha tt i meval ueofmone yc onc e pt ? a . PVofannui t yof₱1 . c .FVofa nnui t yof₱1 . b . PVof₱1 . d. FVof₱1 . 5 .I nt e r e s tpa yme ntda t e sofabondi s s uear eMar c h1a ndS e pt e mbe r1,2 0 x 1 .Thebondwa si s s ue d onJ une1 , 2 0x1 . I nt e r e s te x pe ns ef ort hey e a re nde dDe c e mbe r3 1, 2 0 x1woul dbef or : a . f our( 4 )mont hs c .s e v e n( 7 )mont hs b . s i x( 6 )mont hs d. t e n( 1 0)mont hs 6 . Whe nanot epa ya bl ei si s s ue df orpr ope r t y , goods , ors e r vi c e s , t henot ei si ni t i a l l yme a s ur e da t a .t hef a i rva l ueoft hepr ope r t y , g oods ,ors e r vi c e s . b .t hef a i rva l ueoft henot e . c . us i nga ni mput e di nt e r e s tr a t et odi s c ounta l lf ut ur epa yme nt sont henot e . d. c hoi c e( a )e x c e ptwhe nt hi si snotde t e r mi nabl e ,i nwhi c hc a s e ,whi c he ve ri st hemor ec l e a r l y de t e r mi nabl ebe t we e n( b)a nd( c ) . 7 . Whe nanot epa ya bl ei se x c ha nge df orpr ope r t y ,goods ,ors e r vi c e s ,t hes t a t e di nt e r e s tr a t ei s pr e s ume dt obef a i runl e s s a . noi nt e r e s tr a t ei ss t a t e d. b .t hes t a t e di nt e r e s tr a t ei sunr e a s ona bl e . c .t hes t a t e df a c ea mountoft henot ei sma t e r i a l l ydi ffe r e ntf r om t hec ur r e ntc as hs a l e spr i c ef or s i mi l a ri t e msorf r om c ur r e ntma r ke tval ueoft henot e . d. a nyoft he s e . 8 . Whe nde bti si s s ue da tadi s c ount ,i nt e r e s te xpe ns eove rt het e r m oft hede bte qua l st hec a s h i nt e r e s tpa i d: a . Mi nusdi s c ount . c .Pl usdi s c ount . b . Mi nusdi s c ountmi nusf a c ea mount . d. Pl usdi s c ountpl usf a c ea mount .

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9 . Whi c hoft hef ol l o wi ngs t a t e me nt si st r ue ? a . A noni nt e r e s t be ar i ngnot es ome t i me si sc a l l e dadi s c ount e dnot ebe c aus et hec as hr e c e i ve d i smor et ha nt hef a c ea mountoft henot e . b . A de bt or ’ sDe c e mbe r31 ,2 0 x 1s t a t e me ntoffina nc i a lpos i t i oni st obepubl i s he donMar c h3 1 , 2 0 x2 .Anobl i ga t i onwi t hadueda t eofDe c e mbe r3 1 ,2 0 x6i sal s odueonde ma ndbyt he c r e di t or .AtDe c e mbe r3 1,2 0 x1 ,t he r ei snoi ndi c a t i ont ha tt hec r e di t ori nt e ndst oc a l li nt he de bt . Theobl i ga t i oni sac ur r e ntl i a bi l i t y . c . Thema r ke tr a t eofi nt e r e s ti st hei nt e r e s tr a t eus e dt ode t e r mi net hea mountofc a s hi nt e r e s t t ha twi l lbepa i dont hepr i nc i pa l . d. A de bt or ’ sDe c e mbe r31 ,2 0 x 1s t a t e me ntoffina nc i a lpos i t i oni st obepubl i s he donMar c h31 , 2 0 x2 .Anobl i ga t i ondueDe c e mbe r3 1,2 0 x 6ha sadueda t ewhi c hc a nbeac c e l e r a t e db yt he c r e di t ort ot hepr e s e ntda t ei ft hec ur r e ntr a t i of a l l sbe l o w2 : 1 .Thec ur r e ntr a t i oonDe c e mbe r 3 1 ,2 0 x 1i s2. 2 : 1 .Theobl i ga t i oni sac ur r e ntl i a bi l i t y . 1 0 .As hor t t e r m not epa ya bl ema yi nc l udea l loft hef ol l owi nge x c e pt : a . t r adenot e spa ya bl e . c . une a r ne dr e ve nue . b . nont r adenot e spa yabl e . d. ac ur r e ntma t ur i t yofal ong t e r ml i a bi l i t y . 1 1 .I nt e r e s te x pe ns e sar e a .i nc ur r e donl yoni nt e r e s t be a r i ngobl i ga t i ons b .i nc ur r e dduet opas s a geoft i me . c . noti nc ur r e donr e de e ma bl epr e f e r e nc es ha r e si s s ue d d. i nc ur r e donl ywhe nt hee ffe c t i v ei nt e r e s tr a t ei ss t a t e di nt hei ns t r ume nt 1 2 .Whi c hoft hef ol l owi ngi snott r uea boutt hedi s c ountons hor t t e r m not e spa ya bl e ? a . TheDi s c ountonNot e sPa ya bl ea c c ountha sade bi tba l anc e . b . TheDi s c ountonNot e sPa ya bl ea c c ounts houl dber e por t e da sa na s s e tont heba l a nc es he e t . c . Whe nt he r ei sadi s c ountonanot epa yabl e ,t hee ffe c t i vei nt e r e s tr a t ei shi ghe rt ha nt hes t a t e d di s c ountr a t e . d. Al loft he s ea r et r ue . 1 3 .Whi c hoft hef ol l owi ngs t a t e me nt si snotc or r e c t ? a . Thepr i nc i pa la mountofade bti st hec as horc as he qui va l e ntamountbor r o we d. b . Whe nanonc a s ha s s e ti sa c qui r e da ndt hes t a t e dr a t eofi nt e r e s ti sdi ffe r e ntf r om t hec ur r e nt ma r ke tr a t eofi nt e r e s t ,t hec os toft hea s s e ti st hepr e s e ntva l ueoft hef ut ur ec a s hpa yme nt s di s c ount e da tt hec ur r e ntmar ke tr a t eofi nt e r e s tr a t he rt hana tt hes t a t e di nt e r e s tr a t e . c . Ac ompa nyt ha tr e c e i ve sc as hi na na mountl e s st ha nt hef a c ea mountofanoni nt e r e s t be a r i ngno t epa yabl es houl dr e c or dt henot ea ti t sdi s c ount e dpr e s e ntva l ue . d. Thec a r r yi nga mountofanoni nt e r e s t be a r i ngnot epa ya bl eduei nl umps um wi l lde c r e a s ea s t i megoe sby . Us et hef ol l owi ngi nf or mat i onf ort hene xtfiveque s t i ons : On J anua r y1 ,20 x1 ,ABRI DGE TO SHORTEN Compa nyi s s ue d a4 y e a r ,₱1 , 00 0 , 0 0 0noni nt e r e s t be a r i ng not epa ya bl eduei nf oure qua la nnua li ns t a l l me nt s .Thee ffe c t i vei nt e r e s tr a t ei s12 %. ABRI DGEpr e par e dt hef ol l o wi ngpr of or maamor t i z a t i ont a bl eonane l e c t r oni cs pr e a ds he e t : A B C D E 1 Dat e Cas hpai d I nt e r e s te x pe ns e Amor t i z at i on Pr e s e ntval ue 2 J a n. 1, 2 0 x1 3 De c . 3 1 , 2 0 x1 4 De c . 3 1 , 2 0 x2 5 De c . 3 1 , 2 0 x3 6 De c . 3 1 , 2 0 x4

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1 4 .Thea mountt obepl a c e donc e l lE2i s a .( 1 M ÷4xPVofor di nar ya nnui t yof₱1@1 2 %, n=4 ) b .( 1 M xPVof₱1@1 2 %, n=4 ) c .( 1 M xPVofor di nar ya nnui t yof₱1@1 2 %,n=4 ) d. ( 1 M xPVof₱1@1 2 %, n=4 )+( 1 M x1 0 % xPVofor di na r ya nnui t yof₱1@1 2 %, n=4) 1 5 .Thea mountt obepl a c e donc e l lE6i s a . ( 1M ÷4xPVofor di nar ya nnui t yof₱1@1 2 %, n=4 ) b . ( 1 M xPVof₱1@1 2%, n=4)

c .1 M d. 0

1 6 .I nt e r e s te x pe ns er e c ogni z e di n2 0x 2i sc omput e das a . 1 2 % xE3 c .C4–D4 b . 12 % xE4 d. 1 M x1 2 % 1 7 .Thec a r r yi nga mountoft henot epa ya bl eonDe c e mbe r31 , 2 0 x2i se qua lt o a . E3–D4 c .E4–D4 b . E3+D4 d. 1 M 1 8 .Thev al uepl a c e di nc e l lB4i se qua lt o a . 1 M x1 2% b . 25 0 , 0 0 0

c . 1M –D3 d. E4–D5

1 9 .Thec ur r e ntpor t i onoft heno t epa yabl ea sofDe c e mbe r31 , 2 0 x2i se qualt o a . D4 c .D5 b . D3 d. E5 2 0 .Thenonc ur r e ntpor t i onoft henot epa yabl ea sofDe c e mbe r31 , 2 0x 2i se qua lt o a . E4 c .E3 b . D5 d. E5 Us et hef ol l owi ngi nf or mat i onf ort hene xtni neque s t i ons : On J anua r y 1,20 x 1,HEARTEN ENCOURAGE CHEER Co mpa ny i s s ue d a4 ye a r ,₱1 , 0 0 0 , 0 0 0, noni nt e r e s t be ar i ngnot edueonDe c e mbe r31 ,2 0 x4 .Thee ffe c t i vei nt e r e s tr a t ei s12 %.HEARTEN pr e pa r e dt hef ol l owi ngpr of or maa mor t i z a t i ont a bl eonane l e c t r oni cs pr e a ds he e t : A 1 2 3 4 5 6

Dat e

B I nt e r e s t e x pe ns e

C Di s c oun t

D Pr e s e nt val ue

J a n. 1 , 2 0x 1 De c . 3 1 , 2 0x 1 De c . 3 1 , 2 0x 2 De c . 3 1 , 2 0x 3 De c . 3 1 , 2 0x 4

2 1 .Thea mountt obepl a c e donc e l lB4i s a . 1 0 % xE3 c .₱1 M ÷4 b . 12 % xD3 d. s a mewi t hB3 2 2 .Thea mountt obepl a c e donc e l lD2i sc omput e da s a .( 1 M xPVof₱1@1 2 %, n=4 )+( 1 M xPVofor di nar ya nnui t yof₱1@1 2 %, n=4 ) b .( 1 M xPVof₱1@1 2 %, n=4 )

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c .( 1 M xPVofor di nar ya nnui t yof₱1@1 2 %,n=4 ) d. ( 1 M xPVof₱1@1 2 %, n=4 )+( 1 M x1 0 % xPVofor di na r ya nnui t yof₱1@1 2 %, n=4) 2 3 .I nt e r e s te x pe ns er e c ogni z e di n2 0x 3i sc omput e das a . 1 2 % xD3 c .C4–D4 b . 12 % xD4 d. 1 M x1 2 % 2 4 .Thea mountt obepl a c e di nc e l lC3i sc omput e da s a . C2+B3 c .e qua lt oC4 b . C2–B3 d. I ’ mc onf us e d 2 5 .Thec a r r yi nga mountoft henot epa ya bl eonDe c e mbe r31 , 2 0 x2i se qua lt o a . D3–B4 c .B4+C4 b . D3+B4 d.D3+C4 2 6 .Thec ur r e ntpor t i onoft heno t epa yabl ea sofDe c e mbe r31 , 2 0 x2i se qualt o a . D4 c .D5 b . D3 d. none 2 7 .Thenonc ur r e ntpor t i onoft henot epa yabl ea sofDe c e mbe r31 , 2 0x 2i se qua lt o a . E4 c .E3 b . D5 d. noneoft he s e 2 8 .Thes um ofc e l lC4a ndc e l lD4i s a . e qua lt oD3 b . e qua lt oD5

c .1 M d. noneoft he s e

2 9 .Thev al ueofc e l lD6i s a . e qua lt oD3 b . e qua lt oD5

c .1 M d. z e r o

3 0 .Whi c hoft hef ol l owi ngs t a t e me nt sa boutnoni nt e r e s t be a r i ngnot e si sf a l s e ? a . Thef a c ea mountofanoni nt e r e s t be a r i ngno t ema yi nc l udebot ht hepr i nc i pa la ndi nt e r e s ta s as i ngl ea mountt obepa i dba c ka tma t ur i t yda t e . b . Thepr i nc i pa la mountofanoni nt e r e s t be a r i ngnot ei si t sf ut ur ec as hflo wsdi s c ount e da ti t s e ffe c t i vei nt e r e s tr a t e . c . Thee ffe c t i ver a t eonas hor t t e r m noni nt e r e s t be ar i ngnot e ,wi t has pe c i fie dt e r m,c a nnotbe de t e r mi ne dunl e s si ti sgi v e nont hef a c eoft henot e . d. Noni nt e r e s tbe ar i ngi snotade s c r i pt i vede s i gna t i onf ort hi st ypeofnot ebe c a us es uc hnot e s dobe a ri nt e r e s t . 3 1 .I nt e rCompany s e l l si t spr oduc t si nr e us abl e ,e x pe ns i v ec ont ai ne r s .Thec us t ome rc ha r ge da de pos i tf ore a c hc ont a i ne rde l i ve r e dandr e c e i v e sar e f undf ore a c hc ont a i ne rr e t ur ne dwi t hi n t woye a r sa f t e rt heye a rofde l i ve r y . I nt e ra c c ount sf ort hec ont a i ne r snotr e t ur ne dwi t hi nt het i me l i mi ta sbe i ngr e t i r e db ys al ea tt hede pos i tamount . I nf or ma t i onf or2 0 0 6i sa sf ol l ows : De pos i t sf orc ont ai ne r sa tDe c e mbe r3 1 , 2 0 0 5f r om de l i ve r i e si n: 2 0 04 P 1 5 0, 0 0 0 2 0 05 4 30 , 0 0 0 P De pos i t sf orc ont ai ne r sde l i ve r e di n2 0 06 De pos i t sf orc ont ai ne r sr e t ur ne di n2 0 0 6f or m de l i ve r i e si n: 2 0 04 P 9 0 , 0 0 0 2 0 05 2 5 0 , 0 00

5 8 0, 0 0 0 7 8 0, 0 0 0

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2 0 06

2 86 , 0 0 0

6 2 6, 0 0 0

Wha ta mounts houl dI nt e rCompa nyr e por ta sal i a bi l i t yf orde pos i t sonr e t ur na bl ec ont a i ne r sa t De c e mbe r31 , 2 0 06 ? a .4 9 4 , 0 0 0 b .6 44 , 0 0 0 c . 67 4 , 0 00 d. 7 3 4, 0 0 0 2 0 05be g. 5 8 0 , 0 0 0 2 0 06i nc r e a s e 7 8 0 , 00 0 2 0 06de c r e a s e /r e t ur ns ( 6 2 6 , 0 00 ) 2 0 042 yr . r e f unde xpi r e d( 1 50 k -9 0 k)( 60 , 0 00 ) 67 4 , 0 00 3 2 .I mpr e s s e dCompa ny ,adi vi s i onofPhi l i ppi neRe a l t yCor por a t i onmai nt ai nse s c r o wa c c ount sand pa ysr e a le s t a t et ax e sf orPhi l i ppi ne ’ smor t ga gec us t ome r s .Es c r ow f undsa r eke pti ni nt e r e s t be a r i nga c c ount s .I nt e r e s t ,l e s sa1 0 %s e r vi c ef e e ,i sc r e di t e dt ot hemor t ga ge e ’ sa c c ountandus e d t or e duc ef ut ur ee s c r ow pa yme nt s . Addi t i ona li nf or ma t i onf ol l o ws : Es c r o wa c c ount sl i a bi l i t y , J anua r y1 , 2 0 08 Es c r o w pa yme nt sr e c e i ve ddur i ng2 0 0 8 Re a le s t a t et a x e spa i ddur i ng2 0 08 I nt e r e s tone s c r ow f undsdur i ng2 0 0 8

P9 0 0 , 0 0 0 1 , 5 00 , 0 0 0 1 , 9 00 , 0 0 0 9 0, 0 0 0

Wha ta mounts houl dI mpr e s s e dr e por ta se s c r ow a c c ount sl i a bi l i t yi ni t sDe c e mbe r3 1 , 2 0 0 8bal a nc e s he e t ? a .4 9 1 , 0 0 0 b .5 00 , 0 0 0 c . 58 1 , 0 00 d. 5 9 0, 0 0 0 Escrow account jan. 1, 20x8 Escrow payments received 20x8 Real estate taxes paid 20x8

900,000 1,500,000 (1,900,000 )

Interest on escrow funds (90k- (10% x 90k)

81,000

Escrow account liability December 31, 20x8

581,000

3 3 .Ga l l e r yDe pa r t me ntSt or es e l l sgi f tc e r t i fic a t e s ,r e de e ma bl ef ors t or eme r c handi s et ha te xpi r e s one ye a ra f t e rt he i ri s s ua nc e .Gal l e r y ha st he f ol l owi ng i nf or ma t i on pe r t a i ni ng t oi t sgi f t c e r t i fic a t e ss al e sandr e de mpt i ons : Une ar ne da tDe c e mbe r3 1 ,2 0 0 5 2 0 06s al e s 2 0 06r e de mpt i onsofpr i or ye a rs al e s 2 0 06r e de mpt i onsofc ur r e nt ye a rs al e s

P6 0 0 , 0 0 0 2 , 0 00 , 0 0 0 2 0 0, 0 0 0 1 , 4 00 , 0 0 0

Ga l l e r y’ se x pe r i e nc ei ndi c a t e st ha t1 0% ofgi f tc e r t i fic a t e ss ol dwi l lnotber e de e me d. I ni t sDe c e mbe r3 1 ,2 0 0 6ba l a nc es he e t , wha tamounts houl dGa l l e r yr e por ta sune a r ne dr e v e nue ? a . 4 00 , 0 0 0

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b . 6 00 , 0 0 0 c . 8 00 , 0 0 0 d. 1 , 0 00 , 0 0 0 2006 sales

2006 redemption total less: 10% gift certificate ( 2M x 10%) Unearned revenue

2,000,000 (1,400,000 ) 600,000 (200,000) 400,000

3 4 .I vyCo. ope r a t e sar e t a i ls t or e .Al li t e msa r es ol ds ubj e c tt oa6 %s t a t es a l e st ax , whi c hI vyc ol l e c t s a ndr e c or dsass a l e sr e v e nue .I vyfil e squar t e r l ys al e st axr e t ur nswhe ndue ,byt he2 0 t hda y f ol l o wi ng t hee nd oft hes a l e squa r t e r .Howe v e r ,i na c c or da nc ewi t hs t a t er e qui r e me nt s ,I vy r e mi t ss a l e st a xc ol l e c t e db yt he2 0 t hda yoft hemont hf ol l o wi nga nymont hs uc hc ol l e c t i ons e x c e e d₱50 0 .I vyt a ke st he s epa yme nt sa sc r e di t sont hequa r t e r l ys a l e st a xr e t ur n. Thes a l e st a x e s pa i dbyI vya r ec ha r ge da ga i ns ts a l e sr e v e nue .Fol l owi ngi samont hl ys umma r ya ppe ar i ngi n I vy' sfir s tquar t e r20 0 2s a l e sr e ve nuea c c ount : De bi t Cr e di t J a nuar y 10 , 6 0 0 Fe br ua r y 6 0 0 7 , 4 2 0 Ma r c h 8 , 4 8 0 6 0 0 2 6 , 5 0 0 I ni t sMa r c h31 , 2 0x 2, ba l a nc es he e t , wha ta mounts houl dI vyr e por ta ss a l e st ax e spa ya bl e a . 6 0 0 b . 9 0 0 c .1 , 5 0 0 d. 1 , 5 9 0 Total Sales collected [Total sales inclusive of sales tax (total cr.) 26,500 x (6%/106%)] Less: Remittance of sales tax in february Sales tax payable

1,500 (600) 900

3 5 .OnJ a nua r y1 ,2 0 x1WRECK RUI N Co.a c qui r e dl a ndbyi s s ui ngat hr e e ye ar ,12 %,₱4 , 0 0 0 , 0 0 0 not epa ya bl e .Pr i nc i pa landi nt e r e s tar edueonDe c e mbe r31 ,2 0 x3 .Ho w muc hi st hei nt e r e s t e xpe ns ei n2 0x 2 ? a . 1 , 0 1 7 , 6 00 c .5 3 7 , 6 0 0 b . 96 0 , 0 0 0 d. 7 6 4 , 2 1 3 Notes payable Multiply:

4,000,000 112% 4,480,000

Multiply: Interest Expense in 20x2

12% 537,600

3 6 .Ka r maCompa nys e l l st e l e vi s i onsa ta na ve r a gepr i c eofP7 , 5 0 0a nda l s ooffe r st oe a c hc us t ome ra s e par a t e3 y e a rwa r r a nt yc ont r a c tf orP7 5 0t ha tr e qui r e st hec ompa ny t o pe r f or m pe r i odi c

Page |7

s e r vi c e sa ndt or e pl a c ede f e c t i vepa r t s .Dur i ng2 00 6 ,t hec ompa nys ol d3 0 0t e l e vi s i onsa nd2 7 0 wa r r a nt yc ont r ac t sf orc a s h.I te s t i ma t e st he3 ye a rwa r r a nt yc os t sa sP20 0f orpa r t sa ndP4 0 0f or l a bora nd a c c ount sf orwar r ant i e ss e pa r a t e l y .As s umes a l e soc c ur r e d on De c e mbe r3 1 ,20 0 8 , i nc omei sr e c ogni z e d on t hewa r r a nt i e s ,a nd s t r ai ghtl i ner e c ogni t i on ofwa r r a nt yr e ve nue s oc c ur s . Wha ta mountofc ur r e nta ndnonc ur r e ntl i abi l i t yr e l a t i v et owar r a nt yr e ve nuewoul da ppe a ront he De c e mbe r31 , 2 0 09ba l a nc es he e t , r e s pe c t i ve l y ? a . 0a nd 2 0 2 , 5 00 b . 6 7, 5 0 0and 13 5 , 0 00 c .1 3 5, 0 0 0and 6 7 , 5 0 0 d. 2 0 2, 5 0 0and 0 750 peseos x 270 warranty contracts

202,500

Divided: years

3

To be earned in 20x9 current liability warranty revenue

67,500

Multiply: years( 2010 &2011) Non-current Liability

2 135,000

3 7 .ABCCo . i sc ont e mpl a t i ngoni s s ui nga1 2%, 3 y e a r ,₱1 , 0 0 0 , 00 0bonds .Pr i nc i pa li sduea tma t ur i t y buti nt e r e s ti sdues e mi a nnua l l ye v e r yJ ul y1a ndDe c e mbe r3 1 .ABCde t e r mi ne st ha tt hec ur r e nt ma r ke tr a t eonJ anua r y1 ,2 0x 1i s14 %.How muc hi st hee s t i ma t e di s s uepr i c eoft hebonds a s s umi ngABCi s s ue sbondsonJ a nua r y1 , 2 0x 1 ? a .6 6 6 , 3 4 2 b .2 85 , 9 9 2 c . 95 2 , 3 34 d. 9 6 2, 5 6 3

Future Cash Flows Principal Interest

1,000,000 60,000

PV @7%, n=6

PV factors

Present Values

Pv of 1

0.666342

666,342

Pv of OA of 1

4.766540

285,992

estimated issue prive on Jan.1,201

952,334

Us et h ef o l l o wi n gi nf o r ma t i o nf o rt h ene xtt hr e eq ue s t i o ns : OnJ a nuar y1 , 20 x 1,S CRAWNYS KI NNYCo.i s s ue d1 , 0 0 0 ,₱4 , 0 0 0 ,1 0 %,3 ye arbondsf or₱3 , 8 0 7, 8 5 2 . Pr i nc i pa li sdueonDe c e mbe r3 1,2 0 x3buti nt e r e s t sa r eduea nnua l l ye v e r yye a r e nd.I na ddi t i on, SCRAWNYi nc ur r e dbondi s s uec os t sof₱1 7 9 , 3 1 6.Thee ffe c t i v ei nt e r e s tr a t ei s1 2 %b e f o r eadj us t me nt f orbondi s s uec os t sa nd1 4 %a f t e ra dj us t me ntf orbondi s s uec os t s . 3 8 .Ho w muc hi st hec a r r yi nga mountoft henot eoni ni t i a lr e c ogni t i on? a . 3 , 6 2 8 , 5 36 b . 4 , 0 0 0, 0 0 0 c .3 , 6 3 5 , 3 4 0 d. 3 , 7 5 4 , 3 0 9 Bond cost Bond issue cost Carrying amount of notes in initial recognition

3,807,852 (179,316) 3,628,536

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3 9 .Ho w muc hi st hei nt e r e s te x pe ns ei n2 0x 1? a . 4 3 5 , 4 2 4 b . 57 6 , 2 4 0 c .5 0 7 , 9 9 5

d. 4 0 0, 0 0 0

4 0 .Ho w muc hi st hec a r r yi nga mountoft henot eonDe c e mbe r3 1 , 2 0 x1 ? a . 3 , 4 0 1 , 8 32 b . 3 , 3 9 1, 5 8 0 c .3 , 2 8 8 , 7 7 6 d. 3 , 7 3 6, 5 31 Date Jan. 1,20x1 Dec. 31,20x1

Interest Payment

400,000

Interest Exp.

507,995

Amortization

Present value 3,628,536

107,995

3,736,531

4 1 .Ent i t yA i s s ue sc onve r t i bl ebondswi t hf a c ea mountof₱2 , 0 00 , 0 0 0f or₱2 , 6 00 , 0 0 0.Ea c h₱1 , 0 00 bondi sc onve r t i bl ei nt o10s har e swi t hpa rva l ueof₱6 0pe rs har e .Oni s s ua nc eda t e ,t hebonds a r es e l l i ng a t1 0 2wi t houtt hec onve r s i on opt i on.Wha ti st hev al uea l l oc a t e dt ot hee qui t y c ompone ntoni ni t i a lr e c ogni t i on? a .2 , 0 4 0 , 0 0 0 b .5 40 , 0 0 0 c . 56 0 , 0 00 d. 4 6 0, 0 0 0 Issue price FV of debt instrument w/out equity feature (2mx102%) Equity component

2,600,000 (2,040,000) 560,000

4 2 .OnSe pt e mbe r3 0 ,2 0x 1 ,ADMONI SH WARN Co.i s s ue dne w bondswi t hf a c ea mountof₱1 0 M f orane ti s s ua nc epr oc e e dsof₱4 3 , 2 0 0, 0 0 0 .ADMONI SH us e dt hepr oc e e dst or e t i r ea ne x i s t i ng 1 0 y e a r ,1 2 %,₱3 2 , 0 0 0, 0 0 0 bondsi s s ue d fiveye a r se a r l i e r .Thebondsha v ea n unamor t i z e d di s c ountof₱1, 3 6 0 , 00 0a sofSe pt e mbe r3 0 ,2 0 x1 .ADMONI SH r e a...